It appears that day traders have regained their zest for meme stocks as cryptocurrency continues to wobble, with prices of Bitcoin (BTC) and Ethereum (ETH)—two of the most popular cryptocurrencies—plunging since May. While meme stocks are in the spotlight again, as evidenced by AMC Entertainment Holdings, Inc.’s (AMC) 95% rally on June 2, Wall Street analysts believe substantial declines in these stocks are looming.
The rally is doubtless being fueled by a bout of speculative trading by retail investors who are active on subreddit forum r/wallstreetbets. However, the U.S Securities and Exchange Commission has been observing markets and looking for any more signs of misconduct and manipulation as the hype continues to drive a big rally in meme stocks. Amid the Reddit-fueled volatility, we think it is important that investors avoid FOMO (fear of Missing out) and stay focused on companies that can produce long-term values.
Wall Street analysts believe AMC Entertainment Holding (AMC), GameStop Corp. (GME) and BlackBerry Limited (BB) are highly speculative investment bets given that the meme stock rally is expected to end just as quickly as it began. Their poor long-term growth prospects and weak fundamentals could lead to the stocks suffer a pullback at any time.
AMC Entertainment Holdings, Inc. (AMC)
Founded in 1920, AMC is a movie theater chain that operates approximately 1000 theatres and 10,700 screens in the United States and globally. The company’s premium offerings include IMAX, Dolby Cinema and Prime at AMC. It also provides movie screening, food distribution, online ticket booking, and other related services.
On June 4, AMC announced that it had 501.78 million outstanding shares, as of June 2, owners of which will be entitled to vote at its shareholder meeting scheduled for July 29. In this regard, the company has received several inquiries about so-called fake shares and a potential stock split, which goes against its capital raising goals.
As of March, the company operated 585 domestic theaters with limited seating capacities of between 15% and 60%, representing approximately 99% of domestic theaters. Also, it operated 97 international leased and partnership theaters, with limited seating capacities, representing approximately 27% of international theatres.
AMC’s total non-GAAP revenue declined 84.3% year-over-year to $147.4 million in the first quarter, ended March 31. Its adjusted EBITDA came in at a negative $294.7 million, while its free cash flow came in at a negative $324.8 million. AMC reported a $427.8 million loss from operation and a $566.9 million net loss during this quarter. Moreover, the company’s loss per share came in at $1.42 over this period.
Analysts expect AMC’s EPS to decline at the 217% rate per annum over the next five years. Also, the stock could not beat the consensus EPS estimates in any of the trailing four quarters. AMC’s stock has gained 410.2% over the past month but is currently trading 24.3% below its 52-week high of $72.62.
Of the eight Wall Street analysts that have provided ratings for the stock, three have rated it a Sell. Closing yesterday’s trading session at $55, the $4.30 consensus price target represents a potential 92.2% downside.
GameStop Corp. (GME)
Formerly known as GSC Holdings Corp., GME operates as a specialty retailer, offering entertainment and gaming products through stores and e-commerce sites under the GameStop, EB Games, and Micromania brands. The company also sells network points cards, prepaid digital and subscription cards, as well as used video game software.
Last month, the company completed its voluntary early redemption of $216.4 million of its senior notes, due 2023. The early redemption will eliminate GME’s long-term debt. In the fourth quarter, ended January 30, 2021, GME’ net sales declined 3.3% year-over-year to $2.12 billion. The company’s gross margin decreased 610 basis points from the year-ago value to 21.1%, due primarily to increased freight and credit card fees because of its shift to e-commerce sales. It generated a $448.6 million gross profit, representing a 24.9% decline from the prior-year quarter.
A $5.31 billion consensus revenue estimate for 2023 represents a 2.6% year-over-year decline. Its EPS is likely to decline at 48.2% rate per annum over the next five years. The stock has gained 54.5% over the past month. However, GME is currently trading 42% below its 52-week high of $483.
Wall Street analysts are bearish on GME. Of six analysts that rated the stock, four have rated it Sell. The $55.80 consensus price target represents an 80.1% decrease from its last closing price of $280.01.
BlackBerry Limited (BB)
Based in Waterloo, Canada, BB offers intelligent security software and endpoint security management services to enterprises and governments internationally. The company provides the BlackBerry Spark software platform, as well as IoT solutions such as BlackBerry Certicom, BlackBerry Radar, BlackBerry Jarvis, BlackBerry AtHoc, among other applications. It owned approximately 38,000 patents and applications worldwide, as of February 2021.
In April, Pomerantz LLP commenced an investigation concerning BB’s possible unlawful business practices or securities fraud on behalf of the company’s shareholders. Also, Labaton Sucharow LLP is pursuing FINRA arbitration for Robinhood trading restrictions, on behalf of traders who suffered losses in BB and other stocks.
During the fourth quarter, ended February 28, 2021, BB’s net revenue declined 25.5% year-over-year to $210 million. Its gross margin declined 28.3% from the year-ago value to $152 million, while its operating expenses increased 83.8% year-over-year to $465 million during this quarter. BB incurred a $315 million net loss, compared to a net loss of $41 million in the fourth quarter of 2020. Moreover, its loss per share was t $0.56 and its operating loss came in at $313 million over this period.
BB’s revenue is expected to decline 10.3% year-over-year to $824.43 million for its fiscal year 2022. Its EPS is estimated to decline 145.5% in the next quarter and 127.8% in 2022. The stock has gained 66.9% over the past three months but is currently trading 45.2% below its 52-week high of $28.77.
Of the three Wall Street analysts that rated the stock, one has rated it Sell. Closing yesterday’s trading session at $15.77, its $9 consensus price target represents a potential 42.9% downside.
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AMC shares were trading at $56.79 per share on Tuesday morning, up $1.79 (+3.25%). Year-to-date, AMC has gained 2,578.77%, versus a 13.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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